Warner attempts to exit CD-related employees, for more streaming investment

Warner Music Group (WMG) is reportedly attempting to ease 130 employees out of the company, offering them buyouts. According to Billboard, those staffers “deal with physical product,” which probably means the CD part of Warner’s business. The action is targeted within WEA, the distribution, marketing and sales division of WMG.

Billboard’s sources indicate that the projected cost saving would be applied to streaming in an unspecified way.

The report evolved beyond rumor when Billboard received a letter from WEA President Tony Harlow, who affirmed that the company was “realigning resources within WEA.”

Employees reportedly have 45 days to decide whether to accept the severance offers. Often (though not necessarily in this case) company buyouts are gambles to the affected employees. Those who choose to remain might be laid off with less favorable terms soon after the buyout. Companies often have a cost savings target, and if the buyouts don’t reach it, there could be enforced exits. Again, this is a buyout template, not necessarily how the WMG action will proceed.

What seems more certain is a pivot in WMG’s distribution and marketing strategy, from physical music products to streaming. Nielsen’s 2017 music report shows a 59% increase in on-demand audio streams last year. While that was happening, physical album sales dropped 16.5%. (Downloads dropped 19.6%.)

The annual report from the Recording Industry Association of America (RIAA) is the record industry’s official breakdown of income flows. Streaming account for a bit over half (51%) of 2016 revenue, and that was a watershed report. The 2017 review, which will arrive in March, could blow the doors off any lingering resistance of streaming’s importance, with a much higher number.

It will be even more tectonic if the RIAA shows a meaningful gain in total industry income, up from the roughly $7B of the last few years. Streaming has traded off with physical/download album sales during those years to keep the industry stable at a much reduced level from the high-income CD era. If streaming can start pushing dollars upward in a new trendline, we think the music industry will significantly shift resources and effort.